S&P Global Ratings says AT&T and Verizon, along with T-Mobile US (TMUS) and Sprint (S), should focus 5G wireless services on the industrial Internet of Things. Consumers may resist higher service fees on faster 5G wireless speeds, it says.
“For U.S. telecommunications companies, we have a cautious view on 5G wireless,” S&P analysts Allyn Arden and Madhav Hari said in a note to clients. “We believe that accelerated deployments could hurt balance sheets that are already stretched because of mergers and acquisitions, mature industry conditions, and competitive pressures.”
“We believe the revenue growth associated with 5G will be constrained,” the analysts added. “We question the propensity of consumers to spend more for faster data speeds on their mobile devices. The bulk of the (Internet of Things) revenue opportunities may not materialize for at least five to 10 years. We believe the near-term primary 5G growth driver will be in the form of new machine-to-machine connections.”
Internet of Things Best Case For 5G Growth
5G wireless networks are expected to provide the always-on, reliable, low-data-rate connections needed by sensor networks. Designers see the flexible 5G networks providing faster data speeds for smartphones as well as fixed-broadband services to homes.
Pundits see self-driving cars, smart urban infrastructure and drones as big users. Some of those scenarios could take years to play out though, says the S&P report.
Verizon is testing 5G wireless for delivering high-speed internet services to residential homes, mainly in apartment buildings. Verizon’s residential broadband services could challenge Comcast (CMCSA) and other cable TV companies. But, S&P says it’s unclear how much broadband market share telecom firms can wrest from cable TV companies with 5G services.
“Revenue opportunities from the Internet of Things, autonomous vehicles, and other industrial and commercial applications will take time to develop, while capital outlays in the form of spectrum license acquisitions and fiber network deployments are likely to be substantial,” Arden and Hari said in the report.
FCC 5G Auction
The Federal Communications Commission in November is expected to auction off high-frequency spectrum for 5G services. The available radio spectrum covers only one-quarter of the U.S. territory.
AT&T and Verizon have already amassed high-frequency airwaves for next-generation 5G services in many markets. T-Mobile and Sprint are seeking regulatory approval to merge.
AT&T stock added 0.6% to close at 32.57 on the stock market today. Verizon stock climbed 0.5% to 53.96.
High-dividend paying telecom stocks are often viewed as defensive plays amid market volatility.
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